The experiences and lessons from the Japanese banking sector's "Lost 30 Years" serve as a mirror, offering invaluable insights. It is essential to learn from these historical lessons, proactively address financial risks early, explore innovations in banking service models during an era of low interest rates, promote the reduction in quantity and improvement in quality of small and medium-sized financial institutions, enhance the core functions of finance to optimize the efficiency of financial resource allocation, establish market-oriented and legalized risk resolution mechanisms, and strengthen counter-cyclical financial policy management. This will pave the way for a high-quality development path for the banking industry suited to China's national conditions.
Following World War II, Japan experienced over four decades of miraculous economic high growth, with asset prices such as stocks and real estate soaring sharply, rapidly elevating its economic strength to become the world's second-largest economy. However, this scenario came to an abrupt halt in the early 1990s. With the bursting of the bubble economy, asset prices plummeted, and the Japanese economy entered a prolonged period of "low growth, low inflation, and low interest rates," referred to as the "Lost 30 Years."
Sustained low interest rates have a redistribution effect on benefits. Japan has maintained low interest rates for an extended period, implementing unconventional monetary easing policies of rare duration and intensity globally. Tracing back to the mid-1980s, due to declining exports and an economic downturn, the Bank of Japan initiated a cycle of interest rate cuts. By 1999, short-term policy rates had approached zero, and long-term rates fell below 1% in 2013, essentially exhausting the room for traditional monetary easing. In April 2013, the Bank of Japan adopted Quantitative and Qualitative Easing (QQE), purchasing large-scale assets such as government bonds in an attempt to alter market expectations. In January 2016, Japan introduced negative interest rate policies, setting the interest rate on excess reserves held by financial institutions at the central bank to -0.1%, aiming to pressure institutions to channel surplus funds into the real economy. Negative rates pushed overall market interest levels further down, with yields on government bonds with maturities up to 10 years entering negative territory, making fund utilization and investment exceptionally challenging for financial institutions.
Long-term low interest rates have a dual impact on finance. Positively, lower rates help stimulate economic recovery, boost GDP growth, and elevate asset prices like real estate, stocks, and bonds, thereby expanding corporate funding demand to some extent and increasing corporate loan balances. Concurrently, improved corporate financial conditions and better valuation gains/losses on securities holdings reduce overall credit risk. However, for financial institutions, the negative impacts are more direct and severe, as sharply narrowing interest margins on deposits and loans significantly erode profitability from traditional core businesses. Overall, low interest rate policies resemble a redistribution of benefits, favoring debtor sectors (corporates and government) while disadvantaging savers (households and financial institutions). These policies provide substantial benefits to businesses and the government, but households and financial institutions bear the majority of the consequences.
An assessment of negative interest rate policy impacts on different sectors, based on data from Q1 2016 to Q2 2019 by Mizuho Financial Group, reveals significant losses: the banking sector suffered cumulative net losses of 1.5 trillion yen due to narrowed interest margins; insurance and pension institutions faced severe investment income打击, with net losses of 148.7 billion yen; ordinary households experienced asset return shrinkage far exceeding benefits from low-interest mortgages, resulting in net losses of 409.3 billion yen. In stark contrast, the non-financial corporate sector saw明显improved financial conditions, with net gains of 461.9 billion yen after balancing assets and liabilities; the government sector benefited from reduced interest payments on government bonds, achieving net gains of 561.9 billion yen.
The Japanese banking sector primarily consists of three major financial groups (Mizuho, Mitsubishi UFJ, Sumitomo Mitsui) and 495 regional financial institutions. Under the severe conditions of prolonged low interest rates, Japanese financial institutions, especially major banks, adopted several coping strategies:
Increasing credit supply. Loans from Japanese financial institutions maintained modest annual growth of 2.5% to 3%. Recently, interest rates on new loans showed a slight upward trend, with significant changes in loan recipient structure: balances for small and micro enterprises and individual loans continued to rise, while corporate lending saw notable growth in real estate-related loans.
Expanding securities investment. Due to insufficient effective corporate credit demand, the overall loan-to-deposit ratio in Japanese banking is only 54%. To compensate for inadequate credit extension, banks significantly increased bond investments. However, after sustained unconventional easing policies, returns in the domestic bond market continued to decline. Total investment income for Japanese banks fell from a peak of 10.8 trillion yen in 1996 to 6.6 trillion yen in 2020. With long-term rates persistently extremely low, institutions reduced holdings of yen-denominated bonds, turning to foreign bonds to secure returns, leading to a significant increase in foreign bond holdings.
Boosting non-fund-based business income. Against the backdrop of持续monetary easing and narrowing traditional fund-based business income, vigorously expanding intermediate business income is seen as a key出路. Japanese banks leverage their information advantages and financial functions to expand consulting services in areas like business succession, digital transformation, and sustainability (ESG), using such non-interest income to offset the decline in pure interest income. Major banks utilize group comprehensive strength to offer integrated financial solutions, earning fees through domestic and cross-border M&A advisory and underwriting. For example, Mizuho Financial Group achieved stable earnings in 2024 through diversified operations, with non-interest income (including fees, wealth management, investment banking, trading) accounting for 42.8%. Regional banks primarily increase income by providing loan products with specific terms and offering intermediary services like business matching for companies.
Expanding overseas lending and operations. Major banks actively expand overseas lending through establishing branches abroad and acquiring local entities. Currently, the average proportion of overseas loans for major banks exceeds 30%. Mizuho Financial Group is a model example, with 107 branches in 33 countries and regions globally, promoting a "Commercial Banking + Investment Banking" (CIB) model worldwide, striving to obtain low-cost overseas liquidity deposits, and strengthening sales and trading operations, with overseas business income占比reaching 43%. Additionally, Japanese life insurance and pension institutions commonly implement "Long-term, Overseas, Diversified" (LED) investment strategies to ensure returns,显著increasing allocations to ultra-long-term government bonds and foreign bonds.
Reducing costs for efficiency gains. Major Japanese banks continuously cut domestic operational costs by consolidating or directly closing physical branches. They also reduce risk costs through prudent risk management and strictly control various administrative expenses to achieve efficiency. A notable phenomenon is that Japanese bank employees' wages have remained largely unchanged over the past 30 years. The number of physical bank branches is decreasing, becoming increasingly scarce on streets in major cities like Tokyo. Over the past five years, Mizuho Financial Group reduced its domestic branch network by 25% and staff numbers by 20%, with employees even lacking fixed workstations. Regional financial institutions also cut costs through branch consolidation/closure and improving operational automation and digital efficiency.
For China's banking sector, similarities exist with Japan's development path and challenges, such as asset bubble risks, slowing economic growth, low interest rates, aging populations, and complex external environments. However, fundamental differences exist in political systems, economic scale, development stages, and social culture. China possesses distinct institutional advantages, a robust real economy foundation, a vast domestic consumer market, and state-led technological innovation strategies. Nevertheless, the Japanese banking sector's experiences over the past 30 years offer crucial lessons. China should learn from these, proactively adapt, and forge a high-quality development path suited to its国情.
Proactively address financial risks early. As early as 2017, China前瞻性proposed the battle to prevent and resolve major financial risks, implementing market exits for high-risk institutions like Baoshang Bank and Anbang Insurance, and orderly disposing of risks in small and medium-sized financial institutions. Strengthening and improving financial supervision, intensifying non-performing asset disposal, and controlling bank NPL ratios at low levels have maintained overall financial system stability. However, it is also clear that存量risks in key areas like real estate, local government debt, and small and medium-sized financial institutions are not fully resolved. It is recommended to follow the principles of "early identification, early warning, early exposure, early disposal," take proactive measures, address existing risks while controlling new ones, intensify financial risk disposal, promptly clear risks, firmly maintain financial intermediary functions, and prevent mutual infection and amplification of financial and real economy risks.
Explore innovations in banking service models for the low-interest-rate era. China's banking sector has now entered an era of low interest rates, where the traditional business model reliant on deposit-loan interest spreads is unsustainable. Learning from Japanese banks' beneficial practices in comprehensiveness, internationalization, and refinement, it is advised to深入研究changes in financial demand trends, fundamentally shift banking development concepts, proactively adjust asset structures, and vigorously promote cost reduction and efficiency gains. Specifically, actively expand businesses like wealth management, investment banking, and financial market trading, appropriately increase the proportion of intermediate business income and overseas business income in total revenue, and transition the profit model from relying on interest spreads to comprehensive income. Achieve a fundamental shift from "product-oriented" to "customer-oriented," upgrade from simply selling financial products to providing comprehensive financial solutions, and advance from standardized services to personalized定制services. Deeply integrate into customers' value chains, align interests closely with customers, and realize self-value by assisting customer development and serving economic and social progress.
Promote the reduction in quantity and improvement in quality of small and medium-sized financial institutions. Currently, there are about 4,000 banking financial institutions in China, most of which are small and medium-sized. While the number of institutions has decreased rapidly, the total remains high, with some being small-scale, high-risk, and明显homogeneous. With accelerated digital transformation in banking and large banks moving downstream, competition for small and medium-sized banks is intensifying, pressuring their生存space. Accelerate the reduction in quantity, improvement in quality, and risk resolution reforms for these institutions, including speeding up the establishment of unified legal entities for rural credit cooperatives, promoting mergers and reorganizations locally, encouraging the formation of provincial-level legal entities, supporting urban commercial banks in restructuring and integration, and converting village banks into branches. Throughout this process, adhere to market orientation, address both symptoms and root causes, act within capabilities, fully consider insufficient risk-resolution resources, and dispose of risks through institutional integration and机制transformation.
Enhance core financial functions to optimize financial resource allocation efficiency. The essence of the so-called "Japan Disease" lies in the exhaustion of its traditional economic growth model. Currently, China faces similar challenges like insufficient domestic demand momentum, demographic shifts, and complex trade environments. The key to breaking the impasse is maintaining balanced growth between domestic demand engines and external exports, shifting the growth model from reliance on external demand and investment towards domestic demand and innovation驱动, and seeking new economic growth drivers beyond infrastructure and real estate. To this end,持续deepen structural reforms on the financial supply side, adjust financial asset allocation structures, guide more financial resources towards technological innovation and advanced manufacturing, vigorously develop科技finance, support the deep integration of technological and industrial innovation, and foster new quality productive forces.
Establish market-oriented and legalized risk resolution mechanisms. Learning from Japan's practices in financial risk disposal, handle financial risks according to market-oriented and legal principles, ensuring financial institutions and their shareholders bear responsibility as the main entities in risk resolution. Initially under the Ministry of Finance, Japan's Deposit Insurance Corporation was later placed under the unified management of the Financial Services Agency after gaining independence. This institutional arrangement helps clarify the regulatory responsibility chain for financial institutions from "birth to death." As a reference, further clarify the risk disposal职责of deposit insurance agencies, strengthen their early correction and disposal powers, and fully leverage their role in risk resolution. Further理顺responsibilities among financial regulatory authorities, local governments, and deposit insurance agencies, establishing a normalized market exit mechanism for financial institutions.
Strengthen counter-cyclical financial policy management. Currently, some financial management policies were formulated during economic upswings, with frameworks and standards more suitable for expansion phases. Now, with the macroeconomy in a downward cycle and the financial sector overall in consolidation and contraction,存量risks are gradually being cleared, necessitating adaptive adjustments to certain financial rules including capital constraints, corporate governance, risk disposal, and shareholder equity. It is recommended to utilize opportunities such as enacting financial laws, financial stability laws, and amending financial regulations to adjust and optimize the financial management policy system based on the principle of addressing实质risks and solving practical problems. Under the premise of balancing risk and return and坚守risk bottom lines, appropriately lower capital requirements for small and medium-sized banks engaged only in traditional deposit-lending businesses, improve risk disposal rules for financial institutions, implement actions to strengthen the capabilities of local small and medium-sized financial institutions, and enhance the overall vitality of the financial system.
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